A rabbi, a lawyer and a doctor walk into a
bar.
The bartender looks as them and says,
"What is this, a joke?"
Anyone claiming that stocks and bonds always move in opposite
directions were again proved wrong Friday when both bonds and stocks sold off.
Treasury rates are back to late-June levels, which really aren't that bad in a
historical context. Most seem to blame the European Central Bank (ECB) which
didn't announce fresh stimulus measures, leading to thinking that the foreign
central banks are reaching the limits of their easing policies. Members of the
Federal Open Market Committee have been out talking about rate increases sooner
than later - and certainly they're not talking about lowering rates. As Janet
Yellen herself said, the case for raising (short term) rates had strengthened
in recent months. The markets, however, still think the odds of a Fed Funds increase
is less than 30%. More below.
The events and training opportunities continue on into
September and October.
American Pacific Mortgage Chairman, Kurt Reisig,
announced the theme for the Fall Symposium 2016. Click here to view the short video where Kurt shares the theme
for this year's Symposium, and why you should be there. "You do not want
to miss this! This is our largest sales rally in APM history! Come join us at
the San Diego Convention Center on October 10th and 11th for a wonderful event!
We are American Pacific Mortgage - a Top 10 mortgage banker in the Western
United States. AT APM, we are 100% focused on making our Branch Managers and
Originators look good by providing the best resources and culture in the
industry. If you are interested in finding out more about American
Pacific Mortgage and how we can make you look good, please contact Peter Schwartz."
On September 14th, join MBA St Louis and
NAPMW for an exciting educational meeting to make sense of Recent Public
Policy Developments that Impact Our Housing Market.
The invitation for this joint breakfast with presenter Matt
Tully from Essent Guaranty can be viewed here.
Why 10.0? On September 14th, Fannie Mae covers
not only the 10.0 changes, but also the reasons behind the changes.
Register now by logging into your "My TMBA" profile. Click on the
"Events" link (top right), select the event and register.
FHA has a free,pre-recorded webinar that will
provide users with important tips related to the Electronic Appraisal Delivery
(EAD) Portal, based on the most frequently asked questions (FAQs) received by
the FHA Resource Center since mortgagee onboarding began.
MBA'sSummit on Diversity
and Inclusion 2016, taking place November 16-17 in
Washington, DC. To further the conference theme of increasing home ownership in
America, hear
from the luncheon speaker Franklin Codel, EVP/Head of Home Lending at Wells
Fargo Home Mortgage.
What are the critical actions and legal issues that a lender
should consider when entering into a forbearance agreement? Forbearance
Agreement fundamentals are key and Lorman has the answers with OnDemand webinars available.
In the last few days a couple companies well-versed in
residential lending have been in the press, and some would argue not favorably.
On Thursday Caliber Funding, with its 5,000 employees, made the front
page of the NYT Business Day section with a story by Matthew Goldstein and the
headline, "Subprime Loans Make a Comeback for Some Investors." No one
in the industry disputes the place that certain loans occupy in the spectrum,
but the public's opinion is still negative. Speaking of Loan Star Funds, the
article notes that Caliber is "one of the few financial firms to report a
significant percentage increase this year in the dollar value of subprime
mortgages it is managing and servicing for homeowners...Caliber is also one of
the few lenders beginning to issue mortgages to borrowers with less than
perfect credit and to issue bonds backed by those loans..."
In his article Mr. Goldstein notes that "Caliber is
now of the fastest growing mortgage finance firms in the country. Caliber is
the 10th largest mortgage servicer (at $93 billion), or bill
collector, out of 30 major firms nationwide" and now has $17 billion of
subprime loans in its servicing portfolio.
Caliber, however, in an e-mail to Goldstein stated that
Caliber's origination activity does not include any subprime products, and that
its Fresh Start program is a "non-conforming product that Caliber offers
to underserved borrowers" and that it makes up less than 1 percent of all
annual production and is not considered subprime.
And then we have Wells Fargo which is watching its
critics repelling down the walls. Although the current turmoil is not directly
related to mortgages, some are calling for its CEO to resign, and for class
action lawsuits for the thousands of impacted consumers despite, per the
article, the individual damages working out to $25 each. Saturday's WSJ points
out that Wells' image "as a solid, Main Street lender that avoided the
excesses of the financial crisis and other missteps on Wall Street" is in
danger. The article mentioned that the bank is in "damage control
mode." Also attracting attention is that the Bank neither admitted or
denied the allegations.
Do you want to be a new customer of Wells Fargo if older
customers suffered Wells employees, "often chasing sales goals and
bonuses, created fake accounts for customers, invented personal identification
numbers and moved funds between accounts without authorization?"
Cross-selling mortgage customers will probably slow, and Wells' "6 products
per household" could be in jeopardy.
Wells has about $1.75 trillion in assets, and compliance
is a huge cost. What about for smaller banks? A KPMG survey of 100 executives
at banks with assets between $1B and $20B finds the percentage of total
operating costs driven by regulatory compliance requirements are 11% to 20%
(47%), 5% to 10% (40%), 21% to 30% (8%), and less than 5% (5%).
Are the costs of compliance driving lender mergers and
acquisitions? Depends who you ask. In this case I asked Jeff Babcock,
Senior Partner at the STRATMOR Group. "Given the degree of origination
marketplace euphoria and lenders' splendid financial performance, why has
mortgage company M&A activity accelerated during 2016? More
specifically, why is the ownership of midsize independent mortgage banks more
proactive in exploring their company's sale options than they were in say
2015? It's not driven out a fear of compliance nor concerns about
competitive viability.
"STRATMOR's experience is that the current driving
motivation is age of the selling shareholders (owner/operators) and their
resulting personal exit strategies coupled with strong investor demand for
distributed Retail and Consumer Direct origination platforms. Most
lenders, in fact, are receiving frequent unsolicited inquiries which confirms
the message that it's a true "sellers' market."
"In STRATMOR's current pipeline of sell-side
representations (existing client engagements and high probability prospective
sellers), age of some or all of the owner/operators is the primary motivational
factor in every single situation. At least for the current M&A market ---
in which the average age of owner/operators is in their late 50's to mid-60's
--- we conclude that considerations surrounding age trump all other potential
seller motivations."
Jeff's input wrapped up with, "Once an aging
owner/operator makes their decision to become a committed seller, there are
several predominant factors by which they qualify and assess potential buyers.
Because of earn-outs and often a genuine concern for the well-being of
long-term employees after a sale, the following factors receive the most focus:
cultural compatibility and personal chemistry, likelihood that the buyer's
value proposition will retain the sales force, buyer's reputation, upfront
premium amount, and the probability of achieving the Earn Out. These are
followed by access to an expanded product menu - especially portfolio jumbos, potential
financial pick-ups from leveraging acquisition synergies, benefits associated
with greater production scale, and the avoidance of market overlap with the
buyer's sales force."
As noted in the first paragraph, folks are buzzing about
rates. They are still fine, but not as fine as where they've been most
of the summer. The move Friday was viewed as a continued reaction to ECB
President Draghi's comment on Thursday morning that the governing council had
not discussed an extension of asset purchases beyond March 2017. Long-dated
government bonds have offered little to no fundamental value for some time and
Fed fund futures are simply not showing a much greater chance of a rate hike
than they did early in the week. Still, "don't fight the Fed" as traders
say, and Fed Presidents from around the nation are talking about an increase to
overnight Fed Funds.
Fed Funds don't determine mortgage rates, but psychology
and supply & demand do. This week we're looking at $35 to $40 billion in
corporate supply expected to price this week with the Treasury auctioning $44
billion in 3- and reopened 10-year notes this afternoon before Tuesday's
reopened bond auction. One can expect the NY Fed to buy its usual $1-2 billion
of agency MBS every day, which certainly helps the "demand side of the
equation."
In terms of scheduled economic news this week we have a
bushel full! We have the auctions today: $40 billion 3-month T-bills and $36
billion 6-month T-bills, and $24 billion 3-year notes and $20 billion reopened
10-year note auctions which are both scheduled to be held at 1:00pm. Tomorrow
is a $12 billion 30-year auction.
Wednesday we'll have the MBA's Mortgage Index, announced by
CNBC, and August's Export Prices ex-ag. and Import Prices ex-oil. Thursday is
the usual Initial Jobless Claims, but also August Retail Sales, August Producer
Price Index, September Philadelphia Fed, Q2 Current Account Balance, September
Empire Manufacturing, and August Industrial Production & Capacity
Utilization. As if that wasn't enough, we end the week with August's Consumer
Price Index and the September Michigan Sentiment numbers.
For LOs who didn't lock their borrowers earlier in the
week, Friday the 10-year note worsened .5 in price to close at a yield of 1.67%
but the 5-year T-note and agency MBS prices worsened between .125-.250. This
morning, after having the weekend to think about it and seeing what happened in
overseas markets, we're at 1.69% on the 10-year and agency MBS prices are
worse/down around .125.
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